Financial Planning and Services

Published: 2017-12-05 10:08:02
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Organizationalprogressisoneofthemajorgoalsofanyinstitutionsetupforbusiness. Themanagementoffinancialresourcesandproperdecisionmakingisoneofthemostefficientwaysthroughwhichsuchanenterprisecanobtainprogress. Everyorganizationaimstohaveincreasedprofitmarginsandimprovethequalityoftheircompanythroughcontinuedsustainablepractice. Thepropermanagementofthefinancialaspectofthecompanycanensurethatthesegoalsaremet. Thispaperisareviewoffinancialmanagementpracticesincludingsourcesoffinancetodetermineproperpracticeinthefield. Anumberofcasestudiesareanalyzedfortheadequateansweringofthesequestions.
FinancialPlanning - SourcesofFinance
Therearedifferenttypesoffinanceavailableforbusinessesdependingontheneedsoftheorganizationatthetime. Equityordebtfinancingisavailablebecauseofthevarietyofneedsinacompanydependingonitssizeandfinancestructure. Inthecaseoffinancialneedsinthecompany, therecanbeinternalorexternalformsoffinance. Differentmethodsareavailableforfinancing, namelyshort-termandlong-termfinancesources.
Short-termfinancinghavethreemainformsoffinancing, namelyoverdrafts, factoringandtradecredits (Douglas, 2010). Overdraftsarefinancialprovisionswherethefirmcantakeoutmoremoneyfromthebankthantheyhaveasaformofshort-termfinanceinexpectationofincomestothecompany. Theintentionofsuchoverdraftsisthatthecompanyshouldbeabletopaybackshortly – thusthelabelshort-termfinance. Tradecreditsareformsofshort-termfinancewherethecompanywilltakeoutgoodsoncreditinviewofgaininganadvantagetosupplyandpaybackthedebt (Hill, 2013). Thesupplierwillhavetowaitforafewdaysbeforepaymentforthegoodsdeliveredisprocessed. Factoring, ontheotherhand, iswritinganinvoicetothecompanyinarrearsofpaymenttorequestfullpaymentofallmoneydueasopposedtowaitingforonemonthtoprocesspaymentsforsuchlargetransactions. Forthisparticularcase, thecompanyexpectingpaymentcanfactorinsuchpaymentsinsteadofwaitingthefull28daysfortheprocessingofpayment.
Long-termfinanceplansarealsoavailabletotheinstitutionintheformofleases, grantsandstakeholdercontributions. Anexampleofsuchaleaseisadebenture. Inthisinstance, thecompanyobtainsaloanwhichhasaverylongrepaymentperiod. Encumbrancesfromtheloanarenormallycalculatedanddeductedfromrevenuesbeforetaxesarepaid. Forexample, ifauniversityshouldobtainadebenturefortherefurbishmentofitsfacilities, theserepaymentswillbedeductedfromrevenuesbeforetaxesarepaidtothegovernment. Otherformsofleasesincludethelong-termpaymentofassetsthatthecompanyismakinguseofincludinglands, vehicles, andotherformsofchattelownedbytheorganization. Grantsarefinancesourcesofferedtonon-governmentalorganizationsandotherformsofgovernmentagenciesfordealingwithsocialillssuchasunemployment, crimeandsoon. Mostgrantsarenormallynotrepaid. Theyaregivenasfinancialbooststosuchorganizationsfortheimprovementofservice (IASB, 2007).
Monetarypoliciesareacommonplacephraseintheeconomicenvironment. Itdeniestheactionsthatparticularregionstakeinabidtocontroltheflowofmoneyinthatregionandavoidissuessuchasinflationtopromoteeconomicgrowth (DealFlow, 2014). Planninganorganizationfinanciallyiskeytothepositiveriskavoidanceforinstitutionsforadversitiesthatmayfaceit. Risingeconomiccrisesthatareglobalinnatureshowtheneedforthecompanytoorganizeitselffinanciallyindifferentwaysinordertoavoidthepossibilitiesofliquidationorshuttingdownoperations (BBCUK, 2014). Cashmanagement, prioritizationandbusinessplanningforthelongtermaresomefactorsnecessitatingplanningforenterprisesandorganizations. Inthefaceofprevailingfinancialtrends, thereisalsoaneedforplanningasanenterpriseanticipatesdiverseeconomicsituationsthatmayrockthefinancialsectorofthecompany. Financialplanningfinallyensuresthattherecanbeprogressmeasurementintermsofrevenuesandotherformsofincomethatthecompanyobtains.
Assuch, itisimportanttoconsiderthatthedifferentkindsoffinancingmethodsareattachedwithdifferentcostsandliabilities. Forexample, thecostofobtainingfinancefromequityisoftenhigherthanthatofobtainingfinancefromdebts. Thismeansthatloansanddebenturesarealwaysbetterplacedforbothriskandrepaymentasopposedtoshort-termfinancemethods. Thiscouldbebecauseofarangeoffactorsincludingthefactthatthelongerrepaymentperiodsofferdiversifiedriskportfoliosandevenly-spreadfinancialrisktothelender. Furthermore, long-termdebtsaremostlyusedforvalue-addingpracticestothecompanyincludingtheacquisitionofasserts (Boundless, 2013). Ontheotherhand, short-termfinancingmethodsareoftenusedforthepurposeofrunningdailyoperations, andmaynotyieldasmuchreturnsoninvestmentaswouldlong-terminitiatives. Equityisadeductibleexpense. Assuch, equityfinancingmayincreasehurdleratesinthecourseofcreatingoffsetsforreductionofcashflows. Thismeansthatthereishigherriskattachedtotheengagementofequity. Institutionsreceiveloans (otherwiseknownasdebentures) ataninterestrate. Thisisthecostassociatedwithsuchlongtermfinancingmethods. Short-termmethods, however, maynothavecostsattachedtothemasfinancierswillbewillingtoremoveadditionalcostssolongastherepaymentdateisobserved. However, acompanythattakesonmoreaggressivepursuitsintheirquickbusinessmayoverloadonshort-termfinancesandincreasecompanyriskwhensuchanenterpriseengagesinbusiness. Inaddition, latepaymentsmadeforshort-termfinancecausemiscellaneouscoststhatthecompanyistakingontoincrease.

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Months

Cash Sales

Cash Inflows

Credit Purchases

Cash outflow

Expense

Cash Flow Difference

Cumulative Difference (Discounted)

$’000

$’000

$’000

$’000

$’000

0

0

750

0

0

1

60

550

55

310

15

355

-100

2

70

630

65

450

15

315

0

3

75

770

60

500

15

405

140

4

85

820

70

520

15

455

210


ThefollowingshowsthebudgetfortheHeathLimited. Thisshowsthatwithinthefirstmonthandatthecurrentpricesbeinggivenbythecompany, thereisgoingtobeareturnontheinvestmentthathasbeensetasideinthisproject. Informationfromthesaleshowthatthereisagoodinvestmentforthisparticularsale. Thebreak-evenpointwillbeatthesecondmonthwherethebusinessisexpectedtonowbecomeprofitableaftertheinvestmentthatthecompanyhadmadecomesbacktothem. TheHeathisthusadeficitasitshowsveryhighperformanceinaveryshortperiodoftime. Itisthusnecessarythatthecompanydealswiththedeficitinthemostappropriateway. Thisisundertheconsiderationthatthecompanyissupplyinggoodsthataremovingveryfastandmayfacehigherdemandthansupplyinfuture. Orderingitemsonbetterestimatescouldbeawayofdealingwiththepossibilityofadeficit. Thisensuresthatthenumberofitemsbeingdeliveredisequaltotheneedthatispresentwiththepopulationatthetime. Thecompanycanthusensurethattherearehighersalestomeetthecustomerdemandsfortheproductsbeingsupplied.
Furthermore, adiversifiedrangeofproductsandservicescanhelpthecompanyremainontopofthesupplychainefficiency. Thisisthroughensuringthattherecanbeawidevarietyofthegoodsthataremostwidelybought. Thismeansthatwhenonebrandofgoodsisoutofstock, thealternativecanbeusedtocontinueconductingbusinessforthesakeofcheckingthesupplychain.
Conclusion
Financialplanningpresentsanintegralpartofmanagementforanyenterprise. Asseenabove, financialplanningcanbeusedtodeterminethekindofapproachabusinesscanuseinthesalesofitsproducts. Furthermore, thedifferenttypesoffinancialpropsthatareavailablehavebeenfoundfortheirdifferentkindsofadvantagesanddisadvantagesinthecourseofbusinesspractice. Organizationsshouldthusfindthenecessitytoimplementfinancialplanningforthesakeofcateringfortheirsustainablefuturesinthemarketplace.

References
BBCUK. (2014). SourcesofFinance. RetrievedMarch14, 2016, fromBBCUK: http://www.bbc.co.uk/schools/gcsebitesize/business/finance/sourcesoffinancerev2.shtml
Boundless. (2013). Long-termVsShort-termFinancing. RetrievedMarch14, 2016, fromBoundless.com: www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-II/introduction-to-capital-budgeting-91/long-term-vs-short-term-financing-395-8296/
DealFlow. (2014). DebtFinancing: short-termdebtsfinancing. RetrievedMarch14, 2016, fromdealflow.org: www.dealflow.org.sg/cms/services/financing_for_smes_debt_financing.aspx
Douglas, K. (2010). TakingActiontoClosetheNursing-FinanceGap: LearningfromSuccess. RetrievedFebruary12, 2016, fromNursingEconomics: https://www.nursingeconomics.net/necfiles/staffingUnleashed/su_JA10.pdf
Hill, B. (2013). TheImportanceofaFinancialPlanforaSmallBusiness. RetrievedMarch14, 2016, fromSmallBusinessChron: www.smallbusiness.chron.com/importnace-financial-plan-small-business-4713.html
IASB. (2007). ConceptualFrameworkforFinancialReporting2010. RetrievedMarch14, 2016, fromIASB: http://www.iasplus.com/en/standards/other/framework.

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Financial Planning and Services. (2017, Dec 05). Retrieved from https://speedypaper.com/essays/financial-planning-and-services

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